4 Reasons Why Microsoft Should Acquire Nokia

After years of being pummeled by Apple and Google in the mobile space, Microsoft is moving aggressively to regain its lost relevance. Mobile is a big piece of its recent blockbuster acquisition of Skype, and it will pony up millions — or even billions — to place its Windows Phone platform on Nokia handsets.

Recent rumblings have the company going even further than a mere partnership and acquiring Nokia’s handset business outright. That may seem outlandish given the price tag, which is speculated to be roughly $30 billion, and the proposition has been dismissed by some as simply a weird rumor. And jumping into the manufacturing game could alienate Windows Phone partners like HTC and Samsung, which could mean that Microsoft’s future in mobile would hinge on the move. But Windows Phone sales still appear to be sluggish, so while it would be a huge gamble for Redmond, there are several reasons that a takeover would be a great move. Here’s why.

It opens the door for a Skype handset. Skype recently topped 145 million monthly users; Skype Mobile is supported by the vast majority of smartphones on the market, and the company has delivered more than five million mobile downloads to iPhone users alone. That kind of traction paves the way for an official Skype handset that integrates the service with Windows Phone. Meanwhile carriers that once feared Wi-Fi are now embracing it as a way to offload data traffic, as evidenced by this week’s news that T-Mobile USA has made such calls free. That trend could lay the groundwork for the dramatic uptake of Skype usage on Wi-Fi for users whose carriers allow it.

Ovi is a massive channel for distributing mobile content and services. Nokia claims that its Ovi Store serves as many as five million downloads a day worldwide. Ovi services will already be integrated into Windows Phone 7 under terms of the existing tie-up between the two companies, but Nokia plans to use the storefront to deliver apps for all of its future smartphones. Acquiring Nokia’s mobile business could give Microsoft outright control over the distribution channel.

Nokia still makes great hardware. While Nokia’s dominance in the handset market continues to wane, it still shipped more devices than any other manufacturer in the first quarter of 2011, according to IDC. An acquisition would enable Microsoft to most fully reap the rewards of a marriage between Nokia’s top-notch gadgets and its own impressive new operating system.

Microsoft has experience in manufacturing. While it is first and foremost a software developer, Microsoft has an impressive track record with its Xbox console line. The company has sold nearly 54 million consoles worldwide, and its Xbox Live community supports more than 23 million gamers. It could replicate the Xbox Live model by working with Nokia designers to build great hardware and grow a community of gamers around that hardware. A takeover would enable Microsoft to tap into Nokia’s design expertise to build game-centric handsets that fully leverage both Xbox Live and Nokia’s gaming community features.

It’s true that acquiring Nokia would be a risky move for Microsoft, which would have to spend a vast sum to enter a handset-manufacturing business that is already extremely competitive. For the move to pay off, Microsoft would have to execute it flawlessly to offer mobile consumers what they really want — which is something the company has never been able to do before. The existing tie-up between the two companies that was announced a few months ago, already gives Microsoft a little more leverage in the mobile space, but botching the deal or a larger one would likely mean the end of Microsoft’s hopes to become a major mobile player. But Windows Phone continues to flounder, so acquiring the world’s largest handset maker might be the only way for Microsoft to truly compete with Apple and Google in the era of the superphone.

^^^This is progressing much quicker than I would have expected. I thought that Nokia would sell off their NSN network equipment business and the feature phone handset business before being purchased by Microsoft.

However, if Microsoft does buy the entire company, they could probably sell those two divisions and cover most, if not all the purchase price.^^^

Only losers in this case would be the Nokia shareholders, that would get less than full value for their company.